Nvidia (NVDA, Financial) just hit a regulatory brick wall in China—and the timing couldn't be worse. The U.S. government quietly informed the company on April 9 that its H20 chip, the flagship AI product tailored for the Chinese market, would now require an export license. Nvidia didn't go public with the news until a week later, leaving some of its largest Chinese clients in the dark. Internally, even Nvidia's own China sales team wasn't fully looped in. The fallout? A nasty $5.5 billion write-down tied to inventory, purchase commitments, and reserves—and roughly 6.5% premarket drop in Nvidia stock at 7.48am today.
The H20 chip was Nvidia's last legal lifeline into China after Washington tightened the screws on AI chip exports back in 2022 and again in 2023. Since then, Nvidia had racked up a staggering $18 billion in orders for the H20, thanks to demand from heavyweights like Tencent (TCEHY, Financial), Alibaba (BABA, Financial), and ByteDance. All were ramping up purchases to fuel a new generation of affordable AI models. But the surprise move by U.S. officials—now confirmed to be indefinite—leaves those orders in limbo, as the chip world scrambled for alternatives.
And that's where Huawei comes in. By shutting Nvidia's last open door, U.S. regulators may have just handed a golden opportunity to China's most advanced domestic AI chipmaker. Huawei's Ascend series is gaining traction, and analysts say the clampdown could accelerate customer migration. “By restricting the H20 system, the U.S. is basically pushing Nvidia's Chinese clients straight into Huawei's arms,” said Nori Chiou of White Oak Capital. In trying to slow down China's AI rise, Washington may have accidentally stepped on the gas.
